Euro-Zone Firms’ Loan Demand Fell ‘Substantially,’ ECB Says

Economic

Central Bank

Summary:

1Q credit standards a little tighter, quarterly survey shows.Officials to keep rates at 4% this week before likely June cut.

Demand for corporate loans in the euro area saw a “substantial decline” in the first quarter as the region continues to reel from elevated borrowing costs that probably won’t be cut until the middle of the year, the European Central Bank said.

The ECB’s quarterly Bank Lending Survey, published Tuesday, also showed that credit standards — banks’ internal guidelines or loan-approval criteria — were a little tighter for firms across the 20-nation bloc. There was a moderate easing for mortgages for the first time since late 2021.

“Higher interest rates, as well as lower fixed investment for firms and lower consumer confidence for households, exerted dampening pressure on loan demand,” the ECB said. “The substantial decline in loan demand from firms contrasted with banks’ prior expectations of a stabilization.” Euro-Zone Firms’ Loan Demand Fell ‘Substantially,’ ECB Says_1

Euro-Zone Firms’ Loan Demand Fell ‘Substantially,’ ECB Says_1

A separate poll released Monday by the ECB showed companies reported a modest reduction in the need for loans in the first quarter, while fewer reported a reduction in their availability.

Officials in Frankfurt are parsing such data to determine how soon and how quickly they can undo their unprecedented series of interest-rate increases. With inflation in retreat, cuts are expected to begin in June. Analysts widely expect the deposit rate to be kept at a record-high 4% when policymakers meet this week.

“The weaker firm loan demand raises the risks of an investment slowdown later in the year,” said Tomasz Wieladek, chief European economist at T. Rowe Price. “This is a clear indicator that monetary policy remains too tight in the euro area.” Euro-Zone Firms’ Loan Demand Fell ‘Substantially,’ ECB Says_2

Euro-Zone Firms’ Loan Demand Fell ‘Substantially,’ ECB Says_2

Despite just managing to escape a recession after Russia attacked Ukraine and consumer prices surged, the bloc has barely registered any growth in more than a year.

Banks continued to enjoy a “markedly positive” impact on their net interest margins over the past six months from the ECB’s rate hikes, though the cumulative effect is expected to diminish over the next half year.

While corporate loan demand may decrease further in the second quarter, according to Tuesday’s survey, it should pick up for households. Lenders expect moderately tighter credit standards for firms.

Source：Bloomberg

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Ukadike Micheal

Economic

Forex

In March, Australian business conditions remained largely unchanged despite facing decade-high interest rates, according to a survey by the National Australia Bank (NAB). Sales and employment held steady, with the business conditions index dipping only 1 point to +9, maintaining above-average activity levels seen over the past year. However, there was a slight easing in price pressures from elevated levels, with the survey's measure of business sales holding steady at +14 and employment remaining unchanged at +6, although profitability fell 4 points to +6.

Capacity utilization slightly decreased to 83.2%, suggesting a gradual improvement in the balance between supply and demand. NAB's chief economist, Alan Oster, noted that while firms continued to express concerns about the economic outlook, there were some positive developments in the retail and construction sectors during the month.

Quarterly growth in retail prices eased to 1.3%, down from 1.4% in February, signaling some moderation in inflation pressures. Similarly, growth in purchase costs fell to 1.4% from 1.8%, aligning with expectations for gradual progress in bringing inflation back to target. Oster anticipates further reinforcement of this trend with the release of the Q1 CPI result later in April.

The Reserve Bank of Australia (RBA) maintained its interest rates at 4.35% last month, accompanied by a softening of its stance by dropping a tightening bias. However, the central bank refrained from ruling out any future policy adjustments. Market expectations suggest that interest rates may have reached their peak, but any relief is not anticipated until around November.

This nuanced assessment of Australian business conditions and inflation dynamics underscores the delicate balancing act faced by policymakers. While economic activity remains resilient, concerns persist regarding inflationary pressures and the appropriate timing for monetary policy adjustments. The gradual easing of price pressures provides some reassurance, but vigilance is warranted to ensure sustainable economic growth and price stability in the medium term.

The NAB survey offers valuable insights into the ongoing economic trends in Australia, highlighting the resilience of businesses amidst challenging conditions. However, the path forward remains uncertain, with policymakers closely monitoring developments to navigate the delicate balance between supporting economic growth and managing inflation risks. As markets await further cues from the RBA and economic data releases, strategic decision-making will be essential for businesses and investors alike to navigate this evolving landscape effectively.

Source: Reuters

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Thomas

Economic

Commodity

Market Overview

Oil prices increased due to fading hopes for a ceasefire between Israel and Hamas, raising tensions in the Middle East. Brent crude futures climbed above $90.50, while West Texas Intermediate (WTI) crude reached above $86.50.

The geopolitical strain, especially with potential Israeli military actions in Gaza and Iran’s vow for retaliation, risks disrupting oil supply, impacting the market. This uncertainty supports a bullish trend for oil prices.

The situation also holds implications for the natural gas market, as regional conflicts can affect energy supply routes and demand, influencing both oil and natural gas forecasts.

Natural Gas Price Forecast

Natural Gas and Oil Forecast: Brent at $90.50, WTI $86.50; Upside Next?_1

Natural Gas (NG) trades at $1.95, up by 0.26%. The pivot point stands at $1.97, indicating a potential shift in market sentiment at this level. Resistance is observed at $2.01, $2.06, and $2.10, while support levels are at $1.91, $1.84, and $1.78.

The 50-day and 200-day Exponential Moving Averages (EMA), at $1.88 and $1.89 respectively, are closely aligned, suggesting a consolidating market.

The outlook is bearish below $1.97, but crossing above this level could signal a turn towards bullish momentum. Market participants should watch these indicators closely for directional cues.

WTI Oil Price Forecast

Natural Gas and Oil Forecast: Brent at $90.50, WTI $86.50; Upside Next?_2

USOIL is slightly down at $86.53, a minor 0.04% decrease. The pivot point is at $86.04, indicating a bullish trend if sustained above this level. Key resistance points are identified at $87.47, $88.53, and $89.61, while support lies at $85.33, $84.58, and $83.57.

The 50-day Exponential Moving Average (EMA) stands at $84.82, supporting the current price level, and the 200-day EMA at $81.25 suggests a longer-term uptrend.

The market’s technical stance is bullish above $86.04, with a potential shift to bearish momentum if prices drop below this critical pivot.

Brent Oil Price Forecast

Natural Gas and Oil Forecast: Brent at $90.50, WTI $86.50; Upside Next?_3

UKOIL is priced at $90.53, showing a marginal decrease of 0.02%. The pivot point at $89.47 serves as a crucial threshold; prices above this indicate a bullish outlook. Resistance levels are set at $91.90, $92.89, and $93.93, with support at $87.89, $86.37, and $85.18.

The 50-day Exponential Moving Average (EMA) is $88.88, suggesting near-term support, while the 200-day EMA at $85.55 reflects a stable long-term uptrend.

The technical posture is positive above the pivot point of $89.47, yet a fall below this could precipitate a significant bearish shift.

Source: FX Empire

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Glendon

Economic

The Hong Kong stock market has been on a roller coaster ride lately, experiencing a four-day downturn that saw the Hang Seng Index plummet over 900 points, representing a 5.5% loss and pushing the index below the psychologically important 16,250 mark. Despite the recent bloodbath, a glimmer of hope emerges for potential bargain hunting in the upcoming sessions.

Global Market Malaise

Looking beyond Hong Kong, the global market picture offers little solace. European markets finished lower, while the US market mirrored the indecisiveness with mixed results. Asian markets are anticipated to follow this subdued trend, with investors reluctant to jump in at lower prices while anxieties about rising interest rates linger. In the US, market fluctuations were minimal, reflecting a tug-of-war between the allure of buying at lower prices and the fear of further increases in borrowing costs.

Hong Kong's Woes: A Perfect Storm

Locally, the pain was widespread across all sectors, with technology and property stocks taking the biggest hit. Big names like Alibaba Group and Lenovo weren't spared the carnage. This broad-based sell-off highlights the overarching economic uncertainties and concerns about interest rates, further amplified by recent comments from US Federal Reserve Chair Jerome Powell. His hawkish stance indicated that interest rates might stay elevated for a longer duration due to persistent inflation woes. Additionally, geopolitical tensions, such as the US's planned sanctions on Iran after it attacks Israel, cast a shadow of caution on the market outlook.

Volatility Reigns Supreme

Hong Kong stocks exhibited heightened volatility, hovering near a five-week low, significantly influenced by Powell's hawkish remarks on inflation. This dashed hopes for a near-term cut in interest rates, leading to a dampening of investor sentiment and revised market expectations. Although the Hang Seng Index itself closed practically flat, some blue-chip stocks like Li Auto, Wuxi Biologics, and AIA managed to buck the trend due to technical indicators suggesting they were oversold. Conversely, giants like Alibaba, Meituan, NetEase, and Galaxy Entertainment witnessed declines, with Galaxy Entertainment falling a noteworthy 7.1%.

A Silver Lining

This market correction comes after a four-day sell-off triggered by weak economic data from China and escalating geopolitical tensions in the Middle East. This confluence of events pushed the Hang Seng Index to its lowest level since early March. However, a potential silver lining exists. Currently, Hong Kong stocks trade at an average of 8.07 times forward earnings, making them the cheapest among their global peers, which could entice value investors.

Uncertain Future

Analysts predict continued market fluctuations in the short term, with Hong Kong's economic recovery heavily reliant on improvements in China's property sales and consumer spending. Additionally, the prospect of a more accommodative monetary policy from the US seems unlikely shortly, further complicating the road to recovery for Hong Kong stocks. The coming days will be crucial in determining whether the market can find its footing or succumb to further selling pressure. As always, staying informed about global economic developments, interest rate policies, and geopolitical events will be vital for navigating this complex and ever-changing market landscape.

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Ukadike Micheal

Economic

Stocks

As Japan's currency continued to weaken against the dollar, the country's stock market experienced a notable rally on Tuesday afternoon. The benchmark Topix index surged by 1%, mirroring the yen's 0.06% decline against the dollar, nearing the crucial ¥152 level often viewed as a trigger for government intervention.

Japan's finance minister reiterated concerns about excessive yen depreciation, signaling the government's readiness to intervene if necessary. Meanwhile, Hong Kong's Hang Seng index sustained some early gains, rising by 0.6% in the afternoon session, with Xinyi Solar leading the charge with a 5.2% increase, bringing its year-to-date gains to an impressive 42.1%.

In broader Asian markets, the Hang Seng index showed resilience, recording a 0.7% gain despite challenges, while the CSI 300 index slipped by 0.2%. The Topix index in Japan stood out with a strong 1.0% increase, reflecting investors' confidence amid currency movements. Conversely, South Korea's Kospi index dipped by 0.3%, while India's Nifty 50 index posted a modest 0.3% gain.

The weakening of Japan's currency against the dollar has significant implications for the country's export-driven economy. A depreciating yen makes Japanese exports more competitive in global markets, potentially boosting corporate earnings for export-oriented companies. However, it also raises concerns about the impact on import prices and inflation.

From a technical standpoint, the yen's decline towards the ¥152 level underscores the delicate balance between currency stability and competitiveness. While a weaker yen may benefit exporters, it also heightens the risk of intervention by Japanese authorities to prevent excessive volatility, which could disrupt financial markets.

In the broader context of Asian markets, the performance of key indices reflects a mix of regional and global factors. Geopolitical tensions, economic data releases, and central bank policies continue to influence investor sentiment across Asia. Moreover, ongoing concerns about inflation, supply chain disruptions, and the trajectory of global economic recovery add layers of complexity to market dynamics.

As investors navigate through these uncertainties, staying informed about currency movements and government policies is crucial for managing portfolio risk. The yen's proximity to the ¥152 threshold underscores the importance of monitoring currency markets for potential market-moving developments.

Japan's stock market rally amid yen depreciation highlights the interconnectedness of currency and equity markets in the region. While a weaker yen may support export-oriented sectors, it also raises concerns about intervention and broader market stability. As investors adapt to evolving market conditions, vigilance and adaptability remain key principles for navigating Asian markets in the current landscape of economic uncertainty.

Source: Financial Times

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Ukadike Micheal

Economic

Commodity

The recent surge in commodity prices, particularly those essential for manufacturing and transportation, indicates investor confidence in an extended economic expansion and potential inflation resurgence. Global commodities prices, as measured by the S&P GSCI index, have advanced 12% this year, outpacing the S&P 500's climb, with notable increases in copper, oil, and gold prices.

Analysts attribute this rally to expectations of increased demand from major economies like the U.S. and China, fueled by positive reports on both countries' manufacturing sectors. This upswing has bolstered shares of energy and materials companies but also raised concerns about potential gasoline price hikes ahead of the summer driving season. The Macquarie Group's Commodities Strategy team anticipates further price increases, driven by real income growth and heightened global goods demand.

However, the Federal Reserve's inflation management could be complicated by this commodity surge, potentially hindering planned interest rate cuts. Francisco Blanch, head of global commodities and derivatives research at Bank of America, highlights commodities as a factor that may interfere with Fed rate adjustments.

This rally contrasts sharply with the 18-month decline following the peak reached after geopolitical events such as Russia's invasion of Ukraine. Gloomy economic outlooks, including anticipated recessions and struggles in the Chinese economy, further dampened commodity futures. Yet, these downturns didn't materialize, and the U.S. economy remained robust, with the labor market exceeding expectations.

Recent developments in the oil market underscore the impact of growing global demand and idiosyncratic factors on key commodity prices. Drone attacks in Russia and conflicts in the Middle East have contributed to rising petroleum prices, with Brent crude futures surpassing $90 a barrel. Additionally, slowing U.S. production growth and output cuts by OPEC+ have tightened supplies.

Simultaneously, an improving economic outlook has led to upward revisions in global oil demand forecasts by analysts at the International Energy Agency. This optimism, coupled with a tight market, has driven crude oil prices higher.

The rise in commodity prices has led to increased investor interest in oil producers, with the energy sector being the second-best performing sector in the S&P 500 this year. Similarly, demand for gasoline, diesel, and jet fuel has propelled shares of refiners to record highs. Copper prices have also surged, driven by strong demand from China and intensified by speculators, as seen in bullish bets on the London Metal Exchange.

The commodities rally has been further amplified by speculators, with macro hedge funds scrambling to unwind bets against rising prices. Since commodity prices influence prices across the economy, investors often buy futures as a hedge against inflation, supporting gold's recent record-breaking run.

While the commodities rally signals optimism about economic growth, it poses challenges for inflation management and interest rate policy. Investors must carefully navigate this landscape, balancing opportunities for growth with potential risks of inflationary pressures.

Source: Wall Street Journal

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IC Markets

Economic

Forex

The Japanese Yen (JPY) extends the sideways consolidative price move against its American counterpart and languishes near a multi-decade low heading into the European session on Tuesday. The Bank of Japan's (BoJ) cautious approach and uncertain outlook for future rate hikes, along with speculations that the Federal Reserve (Fed) could delay cutting interest rates, suggests that the gap between US and Japanese rates will stay wide. This, along with a generally positive tone around the equity markets, continues to undermine demand for the safe-haven JPY.

The US Dollar (USD), on the other hand, draws some support from elevated US Treasury bond yields, bolstered by reduced bets for the total number of Fed rate cuts in 2024. This, in turn, is seen as another factor acting as a tailwind for the USD/JPY pair. Investors, however, remain on alert in the wake of the possibility that Japanese authorities will intervene in the market to prevent a destabilizing fall in the domestic currency. This, in turn, helps limit losses for the JPY as traders look to the release of the US consumer inflation figures and the FOMC minutes on Wednesday for a fresh impetus.

Daily Digest Market Movers: Japanese Yen is undermined by dovish BoJ, bears seem reluctant amid intervention fears

The recent jawboning from Japanese authorities, showing readiness to intervene in the markets to address any excessive falls in the domestic currency, helps limit the downside for the Japanese Yen.

Japan's Prime Minister Fumio Kishida said on Friday that excessive volatility in currency rates is undesirable and warned that authorities will use all available means to deal with excessive JPY falls.

Japan Finance Minister Suzuki reiterated on Monday that FX needs to move stably reflecting fundamentals and he won't rule out any option, and will deal appropriately with FX moves.

The Bank of Japan's (BoJ) cautious approach, indicating that accommodative financial conditions will be maintained for an extended period, fails to assist the JPY in attracting any meaningful buying.

Moreover, data released on Monday showed that inflation-adjusted real wages for Japanese workers fell in February for the 23rd consecutive month and further contributed to keeping a lid on the JPY.

The optimism over talks on a potential Israel-Hamas ceasefire remains limited in the wake of Israeli Prime Minister Benjamin Netanyahu's threat of a ground invasion in the southern Gaza city of Rafah.

The upbeat US jobs report released on Friday, along with the recent hawkish remarks by Federal Reserve officials, keeps the US Treasury bond yields elevated and acts as a tailwind for the US Dollar.

The US Treasury bond yields climbed to their highest levels since late November as investors continue scaling back their bets for how deeply the Fed will be able to cut interest rates this year.

Chicago Fed President Austan Goolsbee acknowledged on Monday that the US economy remains strong but wondered how long the central bank can be restrictive without damaging the economy.

Minneapolis President Neel Kashkari said that the central bank cannot stop short on the inflation fight and that the labor market is not red hot like it was 12 months ago but its still tight.

Technical Analysis: USD/JPY consolidates in a two-week-old trading range, bullish potential seems intact

From a technical perspective, the range-bound price action witnessed over the past three weeks or so might still be categorized as a bullish consolidation phase against the backdrop of the recent rally from the March swing low. Moreover, oscillators on the daily chart are holding in the positive territory and are still away from being in the overbought zone, suggesting that the path of least resistance for the USD/JPY pair is to the upside. That said, it will still be prudent to wait for a sustained move and acceptance above the 152.00 mark before positioning for any further gains.

In the meantime, any corrective pullback is more likely to find some support and be bought into near the 151.30 horizontal zone. This should help limit the downside for the USD/JPY pair near the 151.00 mark. A convincing break below the latter, however, might prompt some technical selling and expose Friday's swing low, around the 150.30 region. This is followed by the 150.00 psychological mark, which, if broken decisively, will shift the near-term bias in favor of bearish traders. Spot prices might then accelerate the fall to the 149.35-149.30 region en route to the 149.00 mark.

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